A Foreign National or an entity incorporated outside India can invest and own a Company in India by acquiring shares of the company, subject to the FDI Policy of India. In addition, a minimum of one Indian Director who is a Indian Resident, is required for incorporation of an Indian Company along with an address in India.
Investment and acquisition of equity shares of a Company can be broadly divided into two categories: investment under automatic route and investment under Government approval route.
The automatic route requires no requirement of any prior regulatory approval for investment in equity shares of an Indian business and only post facto filing/intimation with the Reserve Bank of India within 30 days of receipt of investment money in India and filing of prescribed documents and particulars of allotment of shares within 30 days of allotment of shares to foreign investors.
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The following types of Business entitles are available in India:
- Joint Venture Company
- Wholly owned Subsidiary Company
- Limited Liability Partnership
- Liaison Office
- Representative Office
- Project Office
- Branch Office
- Separate Legal Existence
- Limited Liability
- Flexibility of Ownership
- Separation of Ownership and Management
- Tax Planning
- Perpetual Succession
- Easy Transferability
- Borrowing Power
- Minimum 2 Director
- Minimum 2 Shareholder
- DIN (Director Identification Number for all Director)
- DSC (Digital Signature Certificate for all the Directors)
- Minimum Share Capital of Rs. 1,00,000/-
- The Director and Shareholder can be same
- At least 1 of the Director shall be an Indian Resident
Foreign Companies can set up their operations in India by strategic alliances with Indian partners.
Joint Venture may entail the following advantages for a foreign investor:
- Established distribution/ marketing set up of the Indian partner
- Available financial resource of the Indian partners
- Established contacts of the Indian partners which help smoothen the process of setting up of operations
Foreign companies can set up wholly owned subsidiary in India in such sectors where 100% foreign direct investment is permitted under the FDI policy.
. Liaison office acts as a channel of communication between the principal place of business or head office and entities in India. Liaison office cannot undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India. Approval for establishing a liaison office in India is granted by Reserve Bank of India (RBI).
Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.
Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:
- Export/Import of goods
- Rendering professional or consultancy services
- Carrying out research work, in which the parent company is engaged < li> Promoting technical or financial collaborations between Indian companies and parent or overseas group company
- Representing the parent company in India and acting as buying/selling agents in India
- Rendering services in Information Technology and development of software in India
- Rendering technical support to the products supplied by the parent/ group companies
A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).
The Memorandum of Association (MOA) states the main and ancillary objects of the proposed company.
The Articles of Association (AOA) contains the rules and procedures for the routine conduct of the proposed company.
A company registration process is a legal process that usually takes 8-15 days for registration. However, a fixed time line can not be committed due to legalities involved in the due process.
No, the process is completely online these days and MCA does not issue a Printed copy. We can provide the printed copy.
On receipt of the certificate of incorporation a newly formed company can start the business operations.
- PAN
- TAN
- Shop Act
- VAT
- Profession Tax
- Service Tax
- Provident Fund
- ESIC
Yes, you can register a company at your residential address as having a commercial space is not necessary to get a company in India.
Yes, a company’s address can be changed after acquiring a commercial space. The process of change of company address is very easy and it can be done within hours if the new address is within the same city.
Yes, legally a salaried person can become a director of a company. However, the terms and conditions mentioned in his/her employment agreement may have some clauses that might require an expert advice. We recommend you to speak to us before proceeding in order to make an informed and wise decision.
Yes, an existing company can be converted into any other form of business entity by complying the provisions of Companies Act, 2013.
| Particulars | Liaison Office | Project Office / Branch Office | Company | LLP |
|---|---|---|---|---|
| Legal status | Represents the parent company | Extension of parent company | Independent legal status | Independent legal status |
| Setting up requirements | Prioir approval of RBI required | Prior approval of RBI required for BO (other than undertaking manufacturing and service activities in SEZ's), Prior approval not required to set up PO if certain conditions are fulfilled | If activities / sector fall under the ambit of the automatic route, no prior approval required but only post-facto filings to be undertaken with the RBI. In other cases, GoI / FIPB approval required and thereafter post-facto filings required to be undertaken with RBI | Foreign investments allowed in sectors, which are under 100% automatic route with prior GOI / FIPB approval. The sectors should also not be subject to performance linked conditions |
| Permitted activities | Only liaison / representation / communication role permitted. No commercial or business activities allowed to be undertaken | Activities listed / permitted by RBI allowed to be undertaken, manufacturing and processing activities (except in SEZ units) not permitted for BO. PO is permitted to undertake only specific activities in relation and incidental to the execution of the project | Any activity specified in the memorandum of association of the company. Wide range of activities permitted, subject to FDI guidelines | LLP should be engaged in sectors / activities for which 100% FDI is allowed without any approal. LLP's with foreign investment will not be elgible to make any downstream investments |
| Funding of local operations | Local expenses to be met out of inward remittances received from abroad from the head office through normal banking channels | Local expenses to met through inward remittances from head office or from earnings from permitted operations | Funding to be through equity or other forms of permitted capital infusion or borrowings (local as well as oerseas as per prescribed norms) or internal accruals | Contribution in the capital of the LLP should be through inward remittance or by debit to NRE/FCNR account of the designated partner. LLP's are not eligible to raise ECB |
| Limitation of liability | Parent company liable for acts of LO | Parent company liable for acts of BO/PO | Liability limited to the extent of equity participation in the Indian company | Liability of the partners is limited to their agreed contribution to the LLP except in case of fraud, wrongful act, etc |
| Compliance requirements under companies act | Registration and periodical filing of accounts / other documents | Registration and periodical filing of accounts / other documents | Significantly high statutory compliance and filing requirements | Registration with ROC required. Filing annual accounts and submitting annual statement on solvency |
| Compliance requirements under foreign exchange management regulations | Required to file an annual activity certificate (from auditors in India with RBI). In case of multiple LO's the nodal office could file a combined annual activity certificate with respect to all its offices in India | Required to file an annual activity certificate (from auditors in India with RBI) In case of multiple BO's the nodal office could file a combined annual activity certificate in respect of its offices in India | Required to file periodic and annual filings relating to foreign liabilities and assets, reciept of capital and issue of shares to foreign investors | No filing requirements prescribed as of now |
| Compliance requirements under the Income tax act | Since LO is not permitted to undertake any business activity in India, it is typically not subject to tax in India. Howeer, LO is required to undertake annual compliance by filing annual information in the precribed form | Liable to be taxed on income earned at the rate applicable to foreign corporations. 40% plus surcharge and education cess. In case above tax is not applicable than MAT is considered to be applicable to BO/PO at rate of 18.5% plus surcharge and education cess of its book profits. No further tax on repatriation of profits, which are permissible in both cases. Indian transfer pricing regulations are applicable | Liable to be taxed on global income at 30% plus surcharge and education cess on a net income basis. In case above tax is not applicable than Subsidiary company liable to MAT of its book profits. Dividend declared freely remittable but subject to distribution tax of 15% plus surcharge and edu. cess on dividends, pursuant to which dividend is tax free for all shareholders.Distribution tax to be paid only on amount of dividend. | Liable to be taxed on global income at 30% plus education cess on net income basis. In case above tax is not applicable then LLP liable to MAT at the rate of 18.5% plus cess of its book profits no DDT leived on profit dustribution and Indian transfer pricing regulations are applicable. |
| Permanent establishment (PE) | LO's generally do not constitute PE under DTAA due to limited scope of actvities in India. However, if the activities of the LO go beyond the realm of preparatory or auxiliary character as provided for in the DTAA, a PE/taxable presence is likely to be constituted | Generally constituting a PE and a taxable presence under DTAA and domestic IT proisions | An independent taxable entity and not a PE of the foreign company | An independent taxable entity; however, whether interest in LLP results in PE for a foreign partner, is still an ambiguous position under LLP |
| Repatriation of funds on ongoing basis | Typically the LO is not permitted to undertake any business activity in India; as such,there may not be any repatriations from the LO. However, in case of closure of the LO, any surplus money may be repatriated with RBI approval | Approval not required for remittance of post-tax profits to the HO outside India, subject to filing of requisite documents to the RBI | Subsidiary does not require any approval for remittance of post-tax profits; dividends declared will be subject of distribution tax | LLP does not rquire any approval for remittance of post tax profits |
| Exit mechanism | Prioir approval of RBI, ROC and income tax authorities | Prioir approval of RBI, ROC and income tax authorities | Exit can be through sale of shares or winding up or liquidation | Foreign partner permitted to transfer its stake in LLP and can also dissolve the LLP |
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